Canadian Minister of Industry Christian Paradis announced Friday, Dec. 7, 2012, after markets closed that both CNOOC Ltd (Hong Kong: 883, NYSE: CEO), which is controlled by the Chinese government, and Malaysia’s state-owned oil and gas company Petroliam Nasional Berhad, better known as Petronas, had “satisfied” him that their respective applications under the Investment Canada Act for takeovers of Nexen Inc (TSX: NXY, NYSE: NXY) and Progress Energy Resources Corp (TSX: PRQ, OTC: PRQNF) were “likely to be of net benefit to Canada.”

Prime Minister Stephen Harper described these deals as the end rather than the beginning of a trend. “To be blunt,” explained Mr. Harper during a Friday evening press conference, “Canadians have not spent years reducing the ownership of sectors of the economy by our own governments only to see them bought and controlled by foreign governments instead.”

Mr. Harper added that from now on, according to revised rules under the Investment Canada Act (ICA) released concurrently with the decisions on CNOOC/Nexen and Petronas/Progress, only under “exceptional circumstances” would any more Canadian oil sands assets be approved for sale to foreign-state interests.

Acquisitions of non-oil sands companies by state-owned enterprises (SOE) will be reviewed to consider the control or influence to be exerted on the Canadian business, the control or influence likely to be exerted on the larger industry and the control or influence likely to be exerted by the foreign government over the state-owned company.

The prime minister, ever the pragmatist, acknowledged that there would be some disappointment in the aftermath of these decisions and the revisions to the ICA. “Our statements today will not satisfy everybody,” he said. “Some believe you are either ‘for’ foreign investment under all circumstances, or that you must be ‘against’ foreign investment under any circumstance. Practical government rarely permits such simplicity.”

In order to demonstrate, however, that Canada remains “open for business” Mr. Harper announced that the threshold for private-sector foreign takeovers would be raised to CAD1 billion to “focus reviews on the most significant transactions.”

The old review-trigger of CAD330 million would still apply to SOEs such as CNOOC and Petronas.

“In light of growing trends, and following the decisions made today, the government of Canada has determined that foreign state control of oil sands development has reached the point at which further such foreign state control would not be of net benefit to Canada,” Mr. Harper said. “When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments.”

The opposition New Democratic Party said it was “profoundly disappointed,” decrying the lack of consultation and pointing to the longer-term economic and environmental consequences of foreign ownership generally and oil sands development particularly. The Liberal Party of Canada acknowledged the importance to Canada’s long-run economic fortunes of oil sands development but thought the new review standards still too vague.

At the end of the day–and this is probably the reality upon which Mr. Harper based his decision–recovering crude from the oil sands is an extremely capital-intensive prospect. There simply aren’t enough Canadian companies with pockets deep enough to fund the necessary investments.

The bottom line is opening up to foreign investment is essential. And the deeper truth is that many foreign-based companies with sufficient capital are backed by their governments.

The CAD15 billion buyout of Nexen is the second-largest takeover in Canadian history and has therefore attracted much more attention than the CAD5.2 billion deal for Progress Energy. It’s also the latest in a series of moves by China-based entities on energy assets in the Great White North.

It’s also not the first time CNOOC has invested in Canada: In 2011 CNOOC bought 100 percent of oil sands producer OPTI Canada for USD2.4 billion.

CIC also invested CAD1.5 billion investment in Canadian mining company Teck Resources Ltd (TSX: TCK/B, NYSE: TCK), which produces copper, metallurgical coal and zinc as well as gold and molybdenum in North and South America, in 2009.

PetroChina Company Ltd (Hong Kong: 857, NYSE: PTR) invested CAD1.9 billion in what was then Athabasca Oil Sands Corp in late 2009, providing a significant boost for a privately held company at a critical time. Athabasca Oil Sands has since gone public and changed its name to Athabasca Oil Corp (TSX: ATH, OTC: ATHOF).

Buying Nexen gives CNOOC 100 percent control of the Long Lake oil sands project near Fort McMurray in Alberta. Production capacity at Long Lake is 72,000 barrels per day of bitumen which when upgraded generates approximately 58,500 barrels per day of crude oil.

Nexen also controls major positions in three of the world’s most significant conventional oil and gas basins, the UK North Sea, offshore West Africa and the deepwater Gulf of Mexico.

UK operations are expected to produce 94,000 to 117,000 barrels of oil equivalent per day net to Nexen in 2012. Nexen’s CAD1.1 billion expansion plan for the North Sea, where it will spend CAD1.1 billion in 2012, includes the Golden Eagle field, in which the company has a 36.54 percent working interest.

Golden Eagle is expected to produce an estimated 140 million barrels of oil equivalent of proved and probable reserves over an 18-year period.

Nexen has a 20 percent in the offshore West Africa Usan field. The Usan Floating Production, Storage and Offloading (FPSO) unit has capacity to handle 180,000 barrels of oil per, 36,000 of which are net to Nexen.

In the Gulf of Mexico Nexen’s production and reserves are concentrated in six deepwater and four shelf areas. These offshore facilities produced approximately 22,000 barrels of oil equivalent per day in 2011.

Nexen’s interest in the Appomattox field, which is located approximately 72 miles off the Louisiana coast in about 7,200 feet of water, is estimated to contain 65 million barrels of oil equivalent probable reserves of light oil plus approximately 50 million (the estimate is a range of 25 million to 90 million barrels of oil equivalent) of contingent resources of light oil.

The Canadian target also has shale gas interests in its home market as well as in Colombia and Poland.

Apart from current production and reserves, what Nexen brings to CNOOC and to China is technical expertise in offshore drilling gained from decades of working its North Sea and deepwater Gulf assets. It’s very likely Nexen’s technology and know-how will be deployed for offshore drilling in the South China Sea.

Both CNOOC and Petronas have “made significant commitments to Canada in the areas of: governance, including commitments on transparency and disclosure; commercial orientation, including an adherence to Canadian laws and practices as well as free market principles; and employment and capital investments, which demonstrate a long-term commitment to the development of the Canadian economy.”

According to the statement announcing the approval of its deal for Nexen CNOOC will file an annual report detailing its undertakings with Industry Canada. This requirement was not included in the statement announcing the approval of Petronas’ deal for Progress. For 3 top dividend-paying Canadian energy picks, see this free report.

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